As with companies, Universities have a reputation to Uphold

Transcription

1 As with companies, Universities have a reputation to Uphold David M. Edwards CMG Statement of intent The events of November 2011 involving the London School of Economics (LSE) and its connection to the Gaddafi regime have placed the spotlight on higher education establishments. It raised the question whether universities and other educational institutions should be concerned about behaving ethically, and taking pains to do the right thing. This paper discusses what establishments could do to address these concerns.

2 About the author From 2002 to 2005 David M Edwards was Chief Legal Counsel to BSF China Company Limited (a joint venture of Bechtel, Sinopec Engineering and Foster Wheeler). From 1997 to 2002, he was based in Singapore as Vice President and General-Counsel to Bechtel Asia Pacific. He previously held similar responsibilities for Bechtel in Europe. In total he was a senior lawyer with Bechtel for over 10 years and was involved in projects in Asia, Oceana, Europe and the Middle East. Mr. Edwards was the Deputy Attorney-General of Hong Kong from 1990 to 1995 following a distinguished 25 year legal career in the British Foreign Office. He was General-Counsel and Director of the International Atomic Energy Agency (IAEA) from 1979 TO Mr. Edwards is on the Panel of Mediators of the Hong Kong International Arbitration Centre Panel of Accredited Mediators and the US-China Business Mediation Panel. He specializes in mediating construction and commercial disputes. He is Adjunct Professor at the Singapore Management University, teaching Ethics, Corporate Responsibility and Good Governance. He has been a qualified solicitor for over 40 years. David M. Edwards CMG 2 As with Companies, Universities Have a Reputation to Uphold September 2012

3 CONTENTS INTRODUCTION...4 Areas of Potential Concern...5 WHAT ARE THE REPERCUSSIONS OF FAILING TO CARRY OUT PROPER DUE DILIGENCE?...5 WHAT DOES AN ORGANIZATION NEED TO HAVE IN PLACE TO GOVERN THE MAKING OF DECISIONS ABOUT PROPOSED DONATIONS?...6 Conclusion As with Companies, Universities Have a Reputation to Uphold September 2012

4 Introduction The events of November 2011 involving the London School of Economics (LSE) and its connection to the Gaddafi regime have placed the spotlight on higher education establishments. It raised the question whether universities and other educational institutions should be concerned about behaving ethically, and taking pains to do the right thing. Globalization and the rapid growth of the internationalization of business and education have made it ever more important for leaders in education and their stakeholders to be fully aware of the standards of ethical behavior generally expected of them by the public and the reasons they exist. The repercussions of failing to conduct the affairs of an organization in an ethical and responsible manner, as we have seen, can be severe and more importantly, damage its reputation from which it can be difficult to recover. 4 As with Companies, Universities Have a Reputation to Uphold September 2012

5 Areas of Potential Concern Educational institutions depend heavily on donations and endowments of various kinds to enable them to invest in important infrastructure projects, equipment and other vital investment for the future. It is good business practice to conduct due diligence on the sources of these proposed donations. This should cover more than just where the moneys came from originally but who is behind a proposed donation and what kind of character/reputation he or she has. Those organizations need to know their donors just as banks have a duty to know their customers. In addition, educational institutions must determine what the reasons behind a proposed donation are. Is it wholly altruistic? For example, was the donor an alumnus of the institution? If not, does he/she have children or relatives who are hoping for admission and is the proposed donation aimed at influencing the institutions decision-makers in this regard? What Are the Repercussions of Failing to Carry Our Proper Due Diligence? Failure to make all reasonable efforts to determine the facts described in the above paragraph can have very serious consequences for the organization and its officers. For example, if a donation is accepted from a source that is tainted or which is intended by the donor to influence a decision to his advantage (e.g. admission of one of his relatives or friends) the institution and/or its officers may have committed an offence under the US Foreign Corrupt Practices Act (FCPA) or the UK Bribery Act of (UKBA) Apart from the numerous cases that have been brought under the FCPA over the years and the many ongoing investigations under that Act, the new international gold standard (the UKBA), lays down stricter requirements and it is expected that many countries will follow their lead and adopt tougher anticorruption legislation and increase enforcement of these laws. Aside from the heavy penalties (fines and/or imprisonment) that an institution or its officers could incur, the damage to the reputation of the organization could be severe. In the LSE example, it was found that the LSE came to ignore warnings and risk its reputation by forging close links with the former Gaddafi regime. 1 In this context, a useful question for executives to ask themselves when considering particular donation proposals is how would I like to see acceptance of this donation splashed on the front page of a major newspaper? According to newspaper reports (provided below), in a separate example involving another well-known university, in 2009 the Hong Kong Government was criticized by the EU and US for allowing Robert Mugabe to enroll his eldest daughter, Bona, at the University of Hong Kong under an alias name. There is currently a debate within Hong Kong legislators about whether a child who has not done anything wrong should not be asked to take the burden of the wrongs of their parents. Law Yuk Kai, director of Human Rights Monitor, however added that if the money she is spending was siphoned off the ordinary people, there is a problem. Just like other members of the international community, Hong Kong should do its part in imposing sanctions. ² The underlying issues here are what due diligence should be performed on students applying to a university and secondly what policies and procedures should universities have in place to govern decisions on proposed donations? 5 As with Companies, Universities Have a Reputation to Uphold September 2012

6 What Does an Organization Need to Have in Place to Govern the Making of Decisions About Proposed Donations? It is essential that an organization has in place an effective written Code of Conduct that its decision-makers are obliged to follow in all cases where consideration is being given to accepting a donation of any kind. The Code, which should be clearly written, so that it can be easily understood by all those who are required to read it (e.g. no legalese or complicated business-speak), needs to be vigorously implemented and overseen by the relevant executive body of the organization. The Code needs to lay down the criteria/ principles which must govern the decisionmaking process which in turn must be consistently applied. It should include detailed questions that must be asked and satisfactorily answered about the sources of a proposed donation and the donor. For example: Why is this donor proposing to make a donation to our organization? What precisely is the original source of the funds? Is there any reason to believe that the funds have come from any illegal or unethical activity? Do we know this donor? If not, what is known about the donor and his/her/its activities? Does the donor have a good reputation? (A good, open and transparent relationship between the organization and its donors is essential for building trust and confidence.) Are there any conditions (actual or implied) attached to the donation? If so, are they consistent with our ethical standards? These enquiries and their answers in each case should be kept on record so that, if any questions or issues arise later, it will be clear that thorough due diligence was carried out before a decision was taken. Proper evidence of such an exercise having been carried out will be very important in the event of any subsequent enquiries by the authorities. If an organization does not have the expertise or time to carry out proper due diligence, then it should instruct an outside professional firm to carry out this work on their behalf. In addition, if the proposed donation or endowment is large, it is advisable for the organization to enter into a written agreement with the donor. This agreement should contain provisions about the objectives of the donation, any conditions attaching to it, the source of the funds being donated, confirmation that the donor has not been in breach of any relevant laws and regulations, etc. The Code must provide for decisions on the important issue of acceptance or rejection of donations to be taken at the highest executive level of the organization. The decision will follow after proper consideration by a senior responsible officer, often the General Legal Counsel, that detailed consideration on the above points has been completed satisfactorily. Conclusion With globalization, universities are increasingly becoming the new multinational corporations as they seek to expand their global footprint and attract more and more students from other parts of the world. Universities, especially those that offer global MBA programs with partner universities in the UK and US, have become revenue generating machines and often market their products and services in the developing countries of Southeast Asia and China, trying to attract students from these countries where having a western education is fast becoming 6 As with Companies, Universities Have a Reputation to Uphold September 2012

7 a status symbol. However, with this growing global presence comes added exposure to legislation such as the FCPA and the UKBA. It may only be a matter of time before we see the first university being investigated by the US Department of Justice. This paper is not intended to contain legal advice. If you are in any doubt about your legal obligations in any particular case, you should seek legal advice from lawyers qualified in the relevant jurisdiction. References ¹ ² africaandindianocean/zimbabwe/ /zimbabwe- President-Robert-Mugabes-daughter-Bona-studying-in- Hong-Kong.html 7 As with Companies, Universities Have a Reputation to Uphold September 2012

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